Removing Cyrus as director of Tata cos won't be easy

Mumbai:The decision by the board of Tata Sons to oust Cyrus Mistry and the acrimonious exchange that has followed raised questions over the latter continuing on boards of group companies. Those boards where Mistry is chairman can re-designate him as non-executive director by voting on resolutions which will require a simple majority to go through. But if listed companies seek to remove Mistry entirely from the board, the process can be extremely onerous.

Section 115 of the Companies Act, 2013, says only shareholders holding not less than 1% of total voting power or holding shares of at least Rs 5 lakh can send a special notice to the company for a director's removal. A group of shareholders can join hands for this purpose, but the notice has to be signed by all these shareholders who get together.

Here's the fine print on what it will take for Bombay House to evict Cyrus Mistry from group companies:

Replacement Of Chairperson

Who can replace? The board of directors (BOD) have the right to replace a board mem ber from the position of the chairperson (the technical term used is replace and not remove, as another person is appointed in lieu of the replaced member as the chairperson). According to legal experts, the Companies Act, 2013, doesn't provide for any specific process for removal of a chairperson. “A chairperson is the first among equals, however, he can be replaced by a simple majority of the board of directors, present and voting,“ explains Shriram Subramanian, founder and MD, InGovern Research Services.What is the process? A meeting of the BOD is required to be called under section 173(3) by giving a seven days notice in writing to every director at his registered address. A leeway is also available for a shorter notice period. “Such a t ain chairman of various t if meeting can be called by gi ving a shorter notice, the only requirement is that at least one independent director sho uld be present at this proposed board meeting,“ says a legal expert. For instance, Ratan Tata replaced Cyrus Mistry , as chairperson of Tata Sons.

Removal Of A Director Of A Company

Who can remove? Only the shareholders have the right to vote on a resolution for remo val of a director before the ex piry of his term. They can eit her initiate the process of re moval themselves or can vote on a resolution proposed by the board of directors. The re moval is done by an ordinary resolution passed by a simple majority of the shareholders who are present and voting.

Section 169 (1) merely requires that the director who is sought to be removed shall be given a reasonable opportunity of being heard. A special notice is required of any resolution to remove a director.

Process initiated by shareholders: It is not just any shareholder, who can give a special notice, but only shareholder or shareholders holding a certain minimum shares or value of shares. This makes the process slightly more complex.

Section 115 prescribes that only shareholders holding not less than 1% of the total voting power or holding shares of at least Rs 5 lakh (paid up share capital as on the date of the notice) can send a special notice to the company for removal of the director.

A group of shareholders can join hands for this purpose, but the special notice has to be signed by all these shareholders who have got together.The Life Insurance Corporation is the largest institutional investor in Tata group companies. The insurer has 13.6% stake in Tata Steel, 13.12% in Tata Power and 9.81% in Tata Global Beverages. LIC insiders say that it is almost impossible to remove a director in the normal course. In fact, all decisions were “ collective decisions and the actions were consistent with every such collective decision... To suggest Mr Mistry acted on his own, or contrary to `Tata values' or without the knowledge andor concurrence of Ratan Tata and Soonawala, is as false as it is mischievous,“ a statement issued by Cyrus Mistry said.

Tata Sons and DoCoMo have been in a legal battle since the end of 2014 over the amount of money the Tatas have to pay DoCoMo for the Japanese telecom major to exit the joint venture. After Mistry was removed, media reports had quoted Tata sources to say that he was coming in the way of an amicable settlement with DoCoMo.

The eight-point statement begins by saying, “Insinuations that the DoCoMo issue was handled under the watch of Mistry in a manner inconsistent with Tata culture and values are baseless. The suggestion that Ratan Tata and the trustees would not have approved of the manner in which the litigation was conducted is contrary to what transpired.“

It goes on to say ,“A number of discussions on the Docomo situation had been held in the Tata Sons board. Mr Mistry had always mentioned that the Tatas should honour all commitments within the law . This stance is based on Tata Sons' board view and was always consistent with the series of board meetings in which the Docomo is sue was discussed.“ Mistry's office said that the agreement with DoCoMo was executed before he became the chairman of the Tata Group. In 2009, when Ratan Tata was chairman of Tata Sons, the company brought in the Japanese telecom major as a partner in Tata Teleservices. DoCoMo had paid $2.6 billion for a 26.5% stake in Tata Teleservices.

After Mistry was ousted, he, in a letter to the board of Tata Sons on October 25, had criticised the original partnership structure of the venture with DoCoMo and said it raised “several questions about its appropriateness from a commercial or prudential perspective wit hin the then prevailing Indian legal framework“.

In January 2015, DoCoMo had moved courts after Tata Sons said that Indian laws did not allow it to buy back the Japanese company's stake at a pre-agreed price of $1.2 billion.In June 2016, DoCoMo won a $1.2 billion arbitral award from a London court and moved courts to enforce the award in India, US and UK jurisdictions.Later, Tata Sons deposited $1.2 billion with Delhi high court.

Mistry's statement added that the Tatas had requested DoCoMo to join them in seeking the approval from Reserve Bank of India, but the Japanese company did not agree.